Synutra International (SYUT) 10-Q 2016 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to                .

Commission file number 001-33397

SYNUTRA INTERNATIONAL, INC.

DELAWARE		13-4306188
(State or Other Jurisdiction of Incorporation or Organization)		I.R.S. Employer Identification No.
	2275 Research Blvd., Suite 500 Rockville, Maryland 20850
(Address of Principal Executive Offices, Zip Code)

(301) 840-3888

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  Nox

As of August 10, 2015, there were 57,300,713 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

Page

PART I FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
Item 4. Controls and Procedures	20
PART II OTHER INFORMATION
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	22
Signatures	23

PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars and shares in thousands, except per share data)

(UNAUDITED)

	June 30, 2015			March 31, 2015
ASSETS
Current Assets:
Cash and cash equivalents	$	83,633		$	85,171
Restricted cash		144,962			145,906
Accounts receivable, net of allowance of $1,776 and $1,824, respectively		15,416			15,405
Inventories		110,238			87,754
Due from related parties		2,013			2,629
Prepaid Income taxes		393			0
Receivable from disposal of a subsidiary		1,114			6,726
Deferred tax assets		12,325			12,267
Prepayments and other current assets		37,979			27,012
Total current assets		408,073			382,870
Property, plant and equipment, net		226,200			187,085
Land use rights, net		8,646			8,657
Intangible assets, net		2,665			2,588
Restricted cash		87,346			78,799
Due from related parties		1,798			2,139
Deferred tax assets		300			298
Long-term loan receivable		9,809			-
Other non-current assets		3,413			2,449
TOTAL ASSETS	$	748,250		$	664,885
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	166,781		$	145,639
Long-term debt due within one year		113,015			130,426
Accounts payable		56,757			47,764
Income taxes payable		0			1,233
Due to related parties		172			130
Advances from customers		13,831			14,844
Deferred tax liabilities		485			0
Other current liabilities		34,771			46,790
Total current liabilities		385,812			386,826
Long-term debt		218,454			144,627
Deferred government subsidy		3,722			3,816
Capital lease obligations		7,815			7,806
Other long-term liabilities		7,183			7,241
Total liabilities		622,986			550,316
Equity:
Common stockholders’ equity:
Common stock, $.0001 par value: 250,000 authorized; 57,301 and 57,301 issued and outstanding at June 30, 2015 and March 31, 2015, respectively		6			6
Additional paid-in capital		135,440			135,440
Accumulated deficit		(27,453	)		(35,046	)
Accumulated other comprehensive income		14,223			11,526
Total common stockholders’ equity		122,216			111,926
Noncontrolling interest		3,048			2,643
Total equity		125,264			114,569
TOTAL LIABILITIES AND EQUITY	$	748,250		$	664,885

The accompanying notes are an integral part of the consolidated financial statements.

1

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(UNAUDITED)

	Three Months Ended June 30,
	2015		2014
Net sales (including sales to related parties of $ 2,115 and $ 534 for the quarters ended June 30, 2015 and 2014, respectively)	$	82,329	$	85,975
Cost of sales		40,387		47,212
Gross profit		41,942		38,763
Selling and distribution expenses		12,736		12,593
Advertising and promotion expenses		10,286		9,702
General and administrative expenses		6,498		7,255
Gain on disposal and liquidation of subsidiaries		0		14,962
Government subsidies		80		128
Income from operations		12,502		24,303
Interest expense		4,184		4,837
Interest income		2,346		1,688
Other income, net		124		69
Income before income tax expense		10,788		21,223
Income tax expense		2,790		2,826
Net income		7,998		18,397
Net income attributable to the noncontrolling interest		405		457
Net income attributable to common stockholders	$	7,593	$	17,940
Weighted average common stock outstanding – basic and diluted		57,301		57,301
Earnings per share – basic and diluted	$	0.13	$	0.31

The accompanying notes are an integral part of the consolidated financial statements.

2

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(UNAUDITED)

	Three Months Ended June 30,
	2015		2014
Net income	$	7,998	$	18,397
Other comprehensive income, net of tax:
Currency translation adjustment		2,697		(340	)
Reclassification of currency translation adjustments realized upon disposal and liquidation of subsidiaries		0		(7,011	)
Other comprehensive income		2,697		(7,351	)
Comprehensive income		10,695		11,046
Less: Comprehensive income attributable to noncontrolling interest		405		457
Comprehensive income attributable to common stockholders	$	10,290	$	10,589

The accompanying notes are an integral part of the consolidated financial statements.

3

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and shares in thousands)

(UNAUDITED)

	Synutra International, Inc. Stockholders’ Equity
	Common Stock
	Shares		Amount		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive income			Noncontrolling Interest			Total equity
Balance, March 31, 2014		57,301	$	6	$	135,440	$	(104,579	)	$	30,529		$	(140	)	$	61,256
Net income		0		0		0		17,940			0			457			18,397
Other comprehensive income, net of tax of nil		0		0		0		0			(7,351	)		0			(7,351	)
Balance, June 30, 2014		57,301	$	6	$	135,440	$	(86,639	)	$	23,178		$	317		$	72,302
Balance, March 31, 2015		57,301	$	6	$	135,440	$	(35,046	)	$	11,526		$	2,643		$	114,569
Net income		0		0		0		7,593			0			405			7,998
Other comprehensive income, net of tax of nil		0		0		0		0			2,697			0			2,697
Balance, June 30, 2015		57,301	$	6	$	135,440	$	(27,453	)	$	14,223		$	3,048		$	125,264

The accompanying notes are an integral part of the consolidated financial statements.

4

SYNUTRA INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(UNAUDITED)

	Three Months Ended June 30,
	2015			2014
Operating activities:
Net income	$	7,998		$	18,397
Adjustments to reconcile net income to net cash used in (provided by) operating activities:
Depreciation and amortization		2,558			4,701
Bad debt reversal		(351	)		(691	)
Inventory write down		1,640			630
Gain on disposal and liquidation of subsidiaries		0			(14,962	)
Other		(714	)		137
Changes in assets and liabilities:
Accounts receivable		397			(933	)
Inventories		(23,702	)		1,119
Due from related parties		(189	)		(413	)
Prepayments, tax receivables and others		(11,559	)		(1,098	)
Accounts payable		(2,005	)		4,839
Due to related parties		42			(47	)
Advances from customers		(1,082	)		781
Income tax receivable/payable		(1,140	)		(1,584	)
Other current liabilities		(8,437	)		(8,633	)
Other noncurrent liabilities		(208	)		(507	)
Net cash (used in) provided by operating activities		(36,752	)		1,736
Investing activities:
Acquisition of property, plant and equipment		(29,878	)		(29,873	)
Change in restricted cash		(6,605	)		(883	)
Proceeds from assets disposal		1			311
Proceeds from disposal of subsidiaries		5,617			5,208
Changes in long-term loan receivable		(9,809	)		-
Net cash used in investing activities		(40,674	)		(25,237	)
Financing activities:
Proceeds from short-term debt		46,362			15,838
Repayment of short-term debt		(25,453	)		(41,251	)
Proceeds from long-term debt		83,542			27,252
Repayment of long-term debt		(29,173	)		(28,348	)
Payment on capital lease obligations		(266	)		(35	)
Net cash provided by (used in) financing activities		75,012			(26,544	)
Effect of exchange rate changes on cash and cash equivalents		876			165
Net change in cash and cash equivalents		(1,538	)		(49,878	)
Cash and cash equivalents, beginning of period		85,171			90,915
Cash and cash equivalents, end of period	$	83,633		$	41,037
Supplemental cash flow information:
Interest paid	$	4,583		$	4,708
Income tax paid		3,927			1,582
Non-cash investing and financing activities:
Purchase of property, plant and equipment included in accounts payable	$	19,911		$	9,471
Disposal of a subsidiary included in receivables		1,114			22,494

The accompanying notes are an integral part of the consolidated financial statements.

5

SYNUTRA INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Synutra International, Inc. and its subsidiaries (hereinafter collectively referred to as the “Company” or “Synutra”) are principally engaged in production, distribution and sales of dairy based nutritional products under the “Shengyuan” or “Synutra” line of brands in the People’s Republic of China (“China” or “PRC”). The Company focuses on selling powdered formula products for infant and adult, and also engages in other nutritional product offerings, such as prepared foods and certain nutritional ingredients and supplements.

2. BASIS OF PRESENTATION

The Company is responsible for the unaudited consolidated financial statements included in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operating results. The Company prepared these statements following the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, the Company condensed or omitted certain footnotes or other financial information that are normally required by US GAAP for annual financial statements. These statements should be read in combination with the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2015.

The unaudited consolidated financial statements include the financial statements of Synutra International, Inc. and its subsidiaries, its consolidated variable interest entity, Beijing ShengyuanHuimin Technology Service Co., Ltd. (the variable interest entity, or "VIE"), in which it has a controlling financial interest. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity. US GAAP provides guidance on the identification and financial reporting for entities over which control is achieved through means other than voting interests, which requires certain VIEs to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  Through the contractual arrangements between the Company and the VIE, the Company controls the operating activities and holds all the beneficial interests of the VIE and has been determined to be the primary beneficiary of the VIE. The Company has concluded that such contractual arrangements are legally enforceable. The operations associated with the consolidated VIE are insignificant and hold de minimis assets and liabilities.

Net income or loss of a subsidiary is attributed to the Company and to the noncontrolling interests on the basis of relative ownership interest. Noncontrolling interests in subsidiaries are presented separately from the Company's equity therein

All inter-company accounts and transactions have been eliminated in consolidation.

The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.

6

3. DISPOSAL OF A SUBSIDIARY

In June 2014, the Company sold its wholly owned subsidiary in the powdered formula segment, Zhangjiakou Chahaer Dairy Co., Ltd. (“Zhangjiakou”) to Rightcom Co., Ltd. (the “Purchaser”) for a total cash consideration of $28.1 million to be paid in three installments. As of June 30, 2014, the Company has completed all of the closing procedures with the exception of the re-registration of land use right certificate and has effectively transferred its control on Zhangjiakou to the Purchaser. The Company considers the re-registration of land use right certificate with the relevant government bureaus to be administrative in nature. As the result of the sale, the Company recorded a $15.0 million in gain ($11.9 million after tax), which was calculated as the total of the excess of the sale proceeds over the net book value of the assets transferred of $20.1 million and reclassification of foreign currency translation gain of $7.0 million from Other Comprehensive Income. The Purchaser made a 20% payment of $5.6 million and a 60% payment of $16.9 million in May and July 2014 respectively. Along with the completion of the re-registration of land use right certificates, the Company collected the remaining 20% payment of $5.6 million in May 2015.

Prior to the sale, the Company used Zhangjiakou to process high oil whey power to use in its production of powered formula products. Concurrently with the disposal, the Company has entered into agreements with Zhangjiakou, under which the Company will continue to engage Zhangjiakou in processing at least 16,000 tons of whey powder for the Company from June 2014 through June 2016. 

In July 2014, the Company entered into a share purchase agreement with Beijing Jinkangpu Food Technology Co., Ltd. (“Jinkangpu”) to dispose its wholly owned subsidiary in the food segment, Beijing Huiliduo Food Technology Co., Ltd. (“Beijing Huiliduo”) for a total cash consideration of $1.3 million to be paid in two installments. As of September 30, 2014, the Company has completed all of the closing procedures and has effectively transferred its control on Beijing Huiliduo to Jinkangpu. As the result of the sale, the Company recorded a $0.3 million in gain, which was calculated as the total of the excess of the sale proceeds over the net book value of the assets transferred of $1.0 million. Jinkangpu made a 19% payment in fiscal year 2015, with the remaining 81% payment of $1.1 million to be paid by September 2015.

4. INVENTORIES  

The Company’s inventories at June 30, 2015 and March 31, 2015 are summarized as follows:

(In thousands)	June 30, 2015		March 31, 2015
Raw materials	$	69,498	$	50,578
Work-in-progress		21,787		17,905
Finished goods		18,953		19,271
Total	$	110,238	$	87,754

The value of goods-in-transit included in raw materials was $20.2 million and $11.9 million as of June 30, 2015 and March 31, 2015, respectively, which mainly represented the purchase of milk powder and whey powder from international sources.

The Company recorded lower of cost or market provisions for inventory of $1.6 million and $0.6 million for the quarter ended June 30, 2015 and 2014, respectively.

7

5.	RELATED PARTIES AND RELATED PARTY TRANSACTIONS
A.	Related party balances

a. Due from related parties, including current and non-current portion

(In thousands)	June 30, 2015		March 31, 2015
Sheng Zhi Da Dairy Group Corporation	$	1,086	$	1,025
Beijing Honnete Dairy Co., Ltd.		5		2
St. Angel (Beijing) Business Service Co. Ltd.		2,701		3,732
Beijing St. Angel Cultural Communication Co., Ltd.		13		6
Beijing AoNaier Feed Stuff Co., Ltd.		6		3
Total	$	3,811	$	4,768

b. Due to related parties

(In thousands)	June 30, 2015		March 31, 2015
Beijing St. Angel Cultural Communication Co., Ltd.		172		130

The amount due to and due from related parties were unsecured and interest free.

B. Sales to and services for related parties

In the quarter ended June 30, 2015 and 2014, the Company’s sales to related parties mainly included feed grade milk powder and whey powder to Beijing AoNaier Feed Stuff Co., Ltd., and powdered formula products to St. Angel (Beijing) Business Service., Ltd., and services for related parties including office spaces rented to Beijing Honnete Dairy Co., Ltd., Beijing AoNaier Feed Stuff Co., Ltd., St. Angel (Beijing) Business Service Co., Ltd., and Beijing St. Angel Cultural Communication Co., Ltd..

	Three Months Ended June 30,
(In thousands)	2015		2014
Beijing Honnete Dairy Co., Ltd.	$	2	$	2
St. Angel (Beijing) Business Service Co., Ltd.		2,103		473
Qingdao Lvyin Waste Disposal Investment		1		0
Beijing AoNaier Feed Stuff Co., Ltd.		3		53
Beijing St. Angel Cultural Communication Co., Ltd.		6		6
Total	$	2,115	$	534

C. Purchases from related parties

In the quarter ended June 30, 2015 and 2014, St. Angel Cultural Communication provided certain marketing activities for the Company.

	Three Months Ended June 30,
(In thousands)	2015		2014
Beijing St. Angel Cultural Communication Co. Ltd.	$	116	$	115

8

6. PROPERTY, PLANT AND EQUIPMENT, NET 

(In thousands)	June 30, 2015		March 31, 2015
Property, plant and equipment, cost:
Land		1,499		1,447
Capital lease of building		5,780		5,753
Buildings and renovations		80,865		80,013
Plant and machinery		66,708		65,790
Office equipment and furnishings		11,235		11,146
Motor vehicles		2,589		2,577
Others		1,115		1,140
Total cost	$	169,791	$	167,866
Less: Accumulated depreciation:
Capital lease of building		1,041		992
Buildings and renovations		19,023		17,790
Plant and machinery		45,465		44,193
Office equipment and furnishings		9,782		9,599
Motor vehicles		1,900		1,834
Others		801		764
Total accumulated depreciation		78,012		75,172
Construction in progress		134,421		94,391
Property, plant and equipment, net	$	226,200	$	187,085

Land represents a parcel of land acquired for the Company’s French subsidiary.

Construction in progress mainly represents construction and equipment purchase for the French subsidiary as of June 30, 2015 and March 31, 2015.

The Company recorded depreciation expense for owned assets and capital leased assets at $2.5 million and $4.7 million for the quarter ended June 30, 2015 and 2014, respectively.

7. LONG TERM LOAN TO A SUPPLIER

In May 2015, the Company provided a four-year long term loan of $9.8 million with interest rate of 7% to a supplier for the iron tins used for our formula products, as a means of developing their business relationship. The supplier shall use the loan to expand its own upstream manufacturing capacity and to reattribute $4.4 million to us as performance guaranty to secure the preferred supplier status for our French Project. The loan shall be repaid in full by the supplier in installments while the performance guaranty will amortize over ten years without repayment from us, as long as we fulfill the amount of minimum orders on tins each year. The outstanding principal amount of the loan due from this supplier was $9.8 million as of June 30, 2015.

8. DEBT

The Company’s debts consisted of the following:

(In thousands)	June 30, 2015		March 31, 2015
Short-term debt	$	166,781	$	145,639
Long-term debt due within one year		113,015		130,426
Total debt, current		279,796		276,065
Long-term debt, non-current portion		218,454		144,627
Total		498,250		420,692

Long-term debt

The long-term debts, including current portion, as of June 30, 2015 and March 31, 2015 are comprised of:

(In thousands)	June 30, 2015		March 31, 2015
Long-term debt borrowed in Mainland China	$	179,529	$	154,393
Long-term debt borrowed in Hong Kong		93,619		93,099
Long-term debt borrowed in France		58,321		27,561
Total		331,469		275,053

As of Jun 30, 2015, among the long-term debts which were borrowed in Mainland China, $12.4 million was secured by restricted cash deposits of $ 14.4 million and the rest $167.2 million were credit debts. Most of these debts used floating interest rates, which are calculated based on the benchmark lending interest rate published by China’s central bank. The maturity dates range from July 2015 to February 2018. A long-term loan of €11.0 million (equivalent to $12.4 million), which will be due in February 2018 and uses floating interest rates which are calculated based on the London Inter Bank Overnight Rate, or LIBOR, is restricted to the purpose of construction of the French project.

As of June 30, 2015, the long-term debts which were borrowed in Hong Kong were secured by restricted cash deposit of $76.7 million. These debts used floating interest rates, which are calculated based on LIBOR. The maturity dates of the used facility range from August 2015 to March 2017.

As of June 30, 2015, the long-term debts which were borrowed in France were secured by restricted cash deposit of $37.9 million. These debts used floating interest rates, which are calculated based on LIBOR. The maturity dates of the borrowed debts range from January 2019 to September 2022.

As of Jun 30, 2015, the Company had drawn down €26.5 million (equivalent to $29.8 million) under the committed long-term loan facility for Synutra France of €53.0 million (equivalent to $59.6 million) from a bank. This facility used floating interest rate, which was calculated based on LIBOR. The term of this facility was eight years from the actual drawdown date. This facility was pledged by all the long-lived assets of our French Project.

The weighted average interest rate as of June 30, 2015 and March 31, 2015 for the long-term debts was 4.3% and 4.4%, respectively.

Maturities on long-term debt, including current and non-current portion, subject to mandatory redemption are as follows:

(In thousands)	Twelve Months Ended,
June 30, 2016	$	113,015
June 30, 2017		99,847
June 30, 2018		60,287
June 30, 2019		28,543
June 30, 2022		29,777
Total	$	331,469

The total amount of interest cost incurred was $4.9 million and $5.2 million, and the amount thereof that has been capitalized was $0.7 million and $0.3 million, for the quarter ended June 30, 2015 and 2014, respectively.

 Borrowings both in short-term and long-term, including current portion, denominated in RMB, USD and EUR were $196.6 million, $219.7 million and $81.9 million as of Jun 30, 2015, respectively.

9

9. OTHER CURRENT LIABILITIES  

(In thousands)	June 30, 2015		March 31, 2015
Accrued discount, rebate and slotting fee	$	18,486	$	24,861
Payroll and bonus payables		5,095		8,825
Accrued selling expenses		2,389		3,404
Accrued advertising and promotion expenses		2,744		3,980
Others		6,057		5,720
Total	$	34,771	$	46,790

During the Company's annual impairment testing of indefinite lived intangible assets for fiscal year ended March 31, 2015, an impairment loss of $0.8 million was recognized for the Ausmeadow brand due to the lower operating performance than the Company's previous expectations. The Ausmeadow was an minor brand for powdered formula business of nutritional food segment which was acquired in 2012 at $1.2 million and which represented 0.30% and 0.25% of Powdered Formula sales in fiscal 2014 and 2015, respectively. 

10. INCOME TAXES

The effective tax rate is based on expected income (loss), statutory tax rates and incentives available in the various jurisdictions in which the Company operates. For interim financial reporting, the Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision (benefit) in accordance with the ASC No. 740-270, “Income tax – Interim reporting”. As the year progresses, the Company refines the estimates of the year’s taxable income as new information becomes available. This continual estimation process often results in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision (benefit) during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate.

The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carryforward periods, the Company's experience with tax attributes expiring unused and tax planning alternatives. Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold. The Company's ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carryforward periods provided for in the tax law.

11. EARNINGS PER SHARE

For purposes of calculating basic and diluted earnings per share, the Company used the following weighted average common stocks outstanding:

	Three Months Ended June 30,
(In thousands except for per share data)	2015		2014
Net income attributable to common stockholders	$	7,593	$	17,940
Weighted average common stock outstanding – basic and diluted		57,301		57,301
Earnings per share – basic and diluted	$	0.13	$	0.31

10

12. SEGMENT REPORTING

The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. In fiscal year 2014, the Company operated and reported its performance in four segments. However, starting from fiscal year 2015, the Company has operated the Powdered Formula and Foods segments as a single business segment based on a shared distribution network and similar marketing strategies. Therefore, there are only three reportable segments for fiscal year 2015, and the segment information in prior years was restated to be consistent with the current year reportable segments. The three reportable segments are: 

Nutritional food - Sales of powdered infant and adult formula products, and prepared foods.

Nutritional supplement - Sales of nutritional supplement such as chondroitin sulfate to external customers, and microencapsulated Docosahexanoic Acid (“DHA”) and Arachidonic Acid (“ARA”) to powdered formula segment.

Other business - Other business includes non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers, providing genetic diagnostic services for new born babies, and sales of cosmetics to pregnant women.

Segment disclosures are on a performance basis consistent with internal management reporting. The following tables summarized the Company’s revenue and cost generated from different revenue streams.

	Three Months Ended June 30,
(In thousands)	2015		2014
NET SALES TO EXTERNAL CUSTOMERS
- Nutritional food	$	73,726	$	82,250
- Nutritional supplement		8,057		1,668
- Other business		546		2,057
Net sales	$	82,329	$	85,975
INTERSEGMENT SALES
- Nutritional food	$	27	$	1
- Nutritional supplement		3,504		3,490
- Other business		0		0
Intersegment sales	$	3,531	$	3,491
GROSS PROFIT (LOSS)
- Nutritional food	$	41,030	$	39,396
- Nutritional supplement		535		(187	)
- Other business		377		(446	)
Gross profit	$	41,942	$	38,763

(In thousands)	June 30, 2015			March 31, 2015
TOTAL ASSETS
- Nutritional food	$	682,651		$	626,317
- Nutritional supplement		69,688			38,878
- Other business		3,442			2,169
- Unallocated assets		5,535			10,528
- Intersegment elimination		(13,066	)		(13,007	)
Total	$	748,250		$	664,885

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 Sections of this Quarterly Report on Form 10-Q (the “Form 10-Q”) including, in particular, the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed, implied or forecasted in any such forward-looking statements.

Expressions of future goals and expectations or similar expressions including, without limitation, “may,” “should,” “could,” “expects,” “does not currently expect,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “predicts,” “potential,” “targets,” or “continue,” reflecting something other than historical fact are intended to identify forward-looking statements. The factors described in the Company’s Annual Report on Form 10-K under Part I. Item 1A. Risk Factors and below in Part II.Other Information – Item 1A. Risk Factors could cause the Company’s actual results to differ materially from those described in the forward-looking statements. Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on Form 8-K and all amendments to those reports.

Available Information

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the SEC. Such reports and other information filed by the Company with the SEC are available on the Company’s website at http://www.synutra.com when such reports are available on the SEC website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

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Overview

We are a leading infant formula company in China. We principally engage in the production, distribution and sale of dairy based nutritional products under the “Shengyuan” or “Synutra” line of brands in the PRC. We focus on selling powdered formula products for infants and adults, and also engage in other nutritional product offerings, such as prepared foods and certain nutritional ingredients and supplements. We sell most of our products through an extensive nationwide sales and distribution network covering all provinces and provincial-level municipalities in mainland China. As of June 30, 2015, this network comprised over 760 independent distributors and over 300 independent sub-distributors who sell our products in approximately 22,100 retail outlets.

In fiscal years 2014 and 2013, the Company operated and reported its performance in four segments. However, starting from fiscal year 2015, the Company has operated the Powdered Formula and Foods segments as a single business segment based on a shared distribution network and similar marketing strategies. Therefore, there are only three reportable segments for fiscal year 2015, and the segment information in prior years was restated to be consistent with the current year reportable segments. The three reportable segments are:

● Nutritional Food: includes the sale of powdered infant and adult formula products, with major brands including Super, My Angel and Dutch Cow, as well as the sale of prepared foods under the brand of Huiliduo;

● Nutritional Supplement: includes the production and sale of nutritional supplements such as chondroitin sulfate to third parties, and microencapsulated Docosahexanoic Acid (“DHA”) and Arachidonic Acid (“ARA”) to the nutritional food segment for use in powdered formula production; and

● Other Business: includes non-core businesses such as ancillary sales of excess or unusable ingredients and materials to industrial customers, providing genetic diagnostic services for new born babies, and sales of cosmetics to pregnant women.

Executive Summary

After the successful implementation of the Gold Mining program in fiscal 2014 and 2015, which consolidated our retail outlets and improved our management of distributors and stores with regard to both inventories and expenses, as more fully described in the Annual Report on Form 10-K for the fiscal year ended March 31, 2015, we continue to execute the same management philosophy in fiscal 2016. We continue to focus on store profitability, channel inventory levels and the effectiveness of promotional discounts and expenses.

The Kangaroo program which we launched in fiscal 2015 was intended to enhance customer service and brand equity. The primary purpose of this program is to encourage our approximately 8,000 in-store promoters to better serve our consumers through our membership royalty program. Promoters’ compensation was previously solely based on the commission they received on the sales in the stores where they worked and only during the hours they worked.  In the second quarter of fiscal 2015, we started to reward bonuses to promoters based on the royalty points accumulated by their members, regardless of where and when sales occur, which encouraged promoters to maintain an accurate and updated list of their members in our central database.  In the third quarter of fiscal 2015, we launched our self-developed sales management mobile application, called “Treasure in Hand”. All of our promoters were required to download this application and use it to manage or monitor cell phone based communications with their members, including calls, short messages and WeChat messages (the dominant mobile communication application in China).  Our sales staff manages these promoters based on the recorded interactions in Treasure in Hand, and our central database supporting this application has become the centralized platform to distribute information, as well as to analyze and manage sales and service behavior.  The next stage of this program, which started in the last quarter of fiscal 2015, is to encourage our promoters to further consolidate their form of communication to WeChat based group chats to help build a sense of community that matches the nature of our products, and which will allow us to send tailored messages to tens of thousands of such groups in a direct and personal way.  

As the next stage of our Online to Offline (O2O) membership service program, in the first quarter of fiscal 2016 we continue to develop the ThumbMama membership community and the ThumbMall e-commerce platform.  The Company has a public WeChat account by the name of “Mu Zhi Ma Ma”, or ThumbMama, under which we can assign 1 to 3 subaccount to each of our 8,000 promoters.  These subgroups function just like a normal WeChat friends chat group (which is the leading mobile internet based social application in China) but the Company maintains ownership and back door monitoring of these groups.  During this quarter we have required each of our promoters to add members that they developed through offline, in person contact, to these chat groups, and start to actively host these group.  We encourage our promoters to move beyond just being an in-store promoter who physically stands and waits for her customers, to a nutritional consultant who actively encourages questions from her members and provides knowledge and advice on child-rearing.  In addition to its service and social functions, we also hope that the ThumbMama groups will be the portal for our membership to purchase our products via mobile internet.  In the quarter ended June 30, 2015 we have begun to process online transactions in volumes via our WeChat store which is linked to all the ThumbMama subaccount groups.  In addition to the member exclusive WeChat platform, we have also set up an open to the public website by the name of “Mu Zhi Shang Cheng”, or ThumbMall, which features cross border e-commerce, and we saw the first batch of transactions on that website in July 2015.  In the face of continuously intensifying competition in our offline channels, we believe our O2O program will help us to transition to lower cost sales and communication channels without sacrificing service quality to our members.  

Beyond these initiatives, in fiscal 2016 we will continue to focus on several niche markets in which we have already built market leading positions, including our specialty formula products, exclusively marketed private label channel and adult formula products.

We continue to execute on our French Project, which includes two spray drying towers, one for whole milk powder and one for oil wrapped whey protein powder, each with an annual capacity of 45,000 tons, as well as mixing and canning capacity for powdered formula products of 60,000 tons per annum.  The total fixed asset budget for this project is €161 million.   We expect to begin trial operations of the drying towers in the fourth quarter of calendar 2015, with formal operations beginning in the first quarter of calendar 2016, at which time trial operations will begin in the mixing and packaging facility.  Once we receive certification from the Chinese FDA, we plan to start importing our 100% French-produced infant formula into the Chinese market in the second quarter of calendar 2016.

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Three Months Results of Operations

Below is a summary of selected comparative results of operations for the three months ended June 30, 2015and 2014:

	Three Months Ended June 30,
(In thousands, except per share data)	2015			2014			% Change
Net sales	$	82,329		$	85,975			-4	%
- Nutritional food segment		73,726			82,250			-10	%
Cost of sales		40,387			47,212			-15	%
- Nutritional food segment		32,696			42,854			-24	%
Gross profit		41,942			38,763			8	%
- Nutritional food segment		41,030			39,396			4	%
Gross Margin		51	%		45	%		13	%
- Nutritional food segment		56	%		48	%		16	%
Income from operations		12,502			24,303			-49	%
Interest expense, net		1,838			3,149			-42	%
Income before income tax (benefit) expense		10,788			21,223			-49	%
Income tax expense		2,790			2,826			*
- Effective tax rate		25.9	%		13.3	%		*
Net income		7,998			18,397			-57	%
Net income attributable to common stockholders	$	7,593		$	17,940			-58	%
Weighted average common stock outstanding – basic and diluted		57,301			57,301
Earnings per share – basic and diluted	$	0.13		$	0.31			-58	%

* not meaningful

Net Sales

Our net sales by reportable segments are shown in the table below:

	Three Months Ended June 30,							% Change in
(In thousands, except percentage data)	2015		2014		% Change			Volume			Price
Nutritional food	$	73,726	$	82,250		-10	%		-5	%		-6	%
Nutritional supplement		8,057		1,668		383	%
Other business		546		2,057		-74	%
Net sales	$	82,329	$	85,975		-4	%

Net sales of our nutritional food segment include powdered formula products for infants, children and adults, and prepared food. The decrease in net sales of our nutritional food segment was mainly due to the following factors:

● Sales volume of nutritional food products for the three months ended June 30, 2015 was 5,414 tons, as compared to 5,681 tons for the same period in the previous year. The decrease was primarily due to increased competition in our traditional channels which was partly offset by higher volume under our private label business.

● The average selling price of our nutritional food products for the three months ended June 30, 2015 was $13,618 per ton, compared to $14,478 per ton for the same period in the previous year. Average selling price is calculated as net sales, after deducting sales discounts and rebates, divided by sales volume. The decrease in average selling price was mainly due to higher discounts offered in this quarter as compared with discounts offered in the prior year’s period which were lower than normal

The sales volume and average selling price exclude the amount of free products provided to customers, which is recorded as cost of sales in the period.

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The product mix in the nutritional supplement segment is mainly comprised of external sales of chondroitin sulfate materials to international pharmaceutical companies.

Other business mainly included ancillary sales of excess or unusable ingredients and materials to industrial customers. The 74% decrease in sales of our other business compared to the same period in the previous year was mainly due to the decreased sales volume of milk powder, as we now have a higher utilization rate of the whole milk powder we purchase from Fonterra as we have switched to a more selective grade of Fonterra WMP products.

Cost of Sales

Our cost of sales by reportable segments is shown in the table below:

	Three Months Ended June 30,
(In thousands, except percentage data)	2015		2014		% Change
Nutritional food	$	32,696	$	42,854		-24	%
Nutritional supplement		7,522		1,855		306	%
Other business		169		2,503		-93	%
Cost of sales	$	40,387	$	47,212		-15	%

The decrease in the cost of sales of the nutritional food segment was mainly due to decreased raw material purchase prices, especially those of whole milk powder.

The increase in the cost of sales of the nutritional supplement segment was mainly due to the increased sales volume of chondroitin sulfate.

The decrease in cost of our Other business was mainly due to the decreased sales volume of milk powder.

Gross Profit and Gross Margin

	Three Months Ended June 30,
(In thousands, except percentage data)	2015			2014			% Change
Gross profit	$	41,942		$	38,763			8	%
- Nutritional food		41,030			39,396			4	%
Gross margin		51	%		45	%
- Nutritional food		56	%		48	%

The increase of gross margin was primarily contributable to the lower raw material purchase cost, which more than offset the effect of the decrease of average selling prices.

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Expenses

	Three Months Ended June 30,
(In thousands, except percentage data)	2015		2014		% Change
Selling and distribution expenses	$	12,736	$	12,593		1	%
Advertising and promotion expenses		10,286		9,702		6	%
- Advertising expenses		2,080		1,524		37	%
- Promotion expenses		8,206		8,178		0.3	%
General and administrative expenses		6,498		7,255		-10	%
Gain on disposal and liquidation of subsidiaries		0		14,962		*
Government subsidies		80		128		-38	%

* not meaningful

Selling and distribution expenses primarily include compensation expense for sales staff, freight charges and travel expense.

Advertising expenses primarily include media expenses paid to TV stations and e-commerce providers. We believe the influence from traditional TV advertising has diminished recently and as a result we have substantially cut back advertising on TV. Instead, we have shifted our advertising focus to e-commerce providers, mostly for our specialty infant formula products with special nutritional focus, which was the main reason for the increase in advertising expenses. Promotion expenses primarily include promotional products provided to end customers, and service charges for our consumer loyalty program administered by a third party. Based on our brand positioning, we believe direct communication with end customers is a more cost effective way to market our products compared to mass media advertising. Promotion expenses remained stable compared to the first quarter of fiscal year 2015.

General and administrative expenses primarily include salaries for staff and management, depreciation, office rental, office supplies and bad debt expense. The decrease was mainly due to the release of $0.8 million from the compensation fund set up in fiscal year 2009 to settle existing and potential claims affected by melamine contamination, those claims now being a remote probability.

Gain on disposal of subsidiaries represented gain on the disposal of Zhangjiakou to a third party of $15.0 million in the quarter ended June 30, 2014.

Interest Expense and Interest Income

	Three Months Ended June 30,
(In thousands, except percentage data)	2015		2014		% Change
Interest expense	$	4,184	$	4,837		-14	%
Interest income		2,346		1,688		39	%

The decrease in interest expense was mainly due to decreased average interest rate as we borrow more USD loans from Hong Kong which provide lower interest rate, partially offset by increased loan balance. There was $0.7 million of interest expenses capitalized for the French Project in the quarter ended June 30, 2015

The increase in interest income was mainly due to an increase in average restricted cash balance, which earned a higher interest rate than cash and cash equivalents.

Net Income Attributable to Common Stockholders

As a result of the foregoing, net income attributable to common stockholders for the three months ended June 30, 2015 was $7.6 million, compared to $17.9 million for the same period in the previous year.

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Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash on hand, cash from operations and available borrowings. Cash flows from operating activities represent the inflow of cash from our customers and the outflow of cash for inventory purchases, manufacturing, operating expenses, interest and taxes. Cash flows used in investing activities primarily represent capital expenditures for equipment and buildings, and restricted cash used as security against letter of credits, bank acceptance bills and short-term and long-term borrowings. Cash flows from financing activities primarily represent proceeds and repayments of borrowings. In addition, while there can be no assurance that we will be able to refinance our short-term bank borrowings as they become due, historically, we have renewed or rolled over most of our bank loans after the maturity date of the loans and we believe we will continue to be able to do so.

Cash and cash equivalents totaled $83.6 million at June 30, 2015, of which $78.8 million was held outside of the United States.

On September 17, 2012, the Company entered into a partnership framework agreement, a milk supply agreement, a whey supply agreement, a whey powder supply agreement, and a technical assistance agreement with Sodiaal Union, a French agricultural cooperative company (“Sodiaal”), and/or Euroserum SAS (“Euroserum”), a French subsidiary of Sodiaal, relating to a long-term industrial and commercial partnership between Sodiaal and the Company. Under these agreements, the Company undertakes to build a new drying facility (the “French Project”) in Carhaix, France, intended to manufacture powdered milk and fat-enriched demineralized whey. The Company committed to purchase, and Sodiaal and Euroserum committed to sell, 288 million liters of milk per year for ten years, an amount of whey equivalent to 24,000 tons of 70% demineralized pre-concentrated dry whey extract per year for ten years, and 6,000 tons of 70% demineralized whey powder per year, or an equivalent quantity of liquid whey, for ten years, at market based prices at the time of purchase, to satisfy the production needs of the new drying facility. If the Company purchases less than the agreed amount, the Company would compensate Sodiaal or Euroserum for the loss suffered. The Company has decided to add 60,000 tons of packaging and warehousing capacity for powdered formula products to the French Project. As a result, the updated estimated costs to build the facility is approximately €161.0 million.

As of June 30, 2015, approximately €108.4 million under the total fixed asset budget of €161.0 million was already invested. The Company has entered into a long-term project financing of €53.0 million, €26.5 million of which was unused as of June 30, 2015. In addition, the Company plans to finance the remaining part of the project with the combination of cash on hand, future operating cash flows and other bank borrowings as needed.

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Cash Flows

The following table sets forth, for the periods indicated, certain information relating to our cash flows:

	Three Months Ended June 30,
(In thousands)	2015			2014
Cash flow used in/(provided by):
Operating activities
Net income	$	7,998		$	18,397
Depreciation and amortization		2,558			4,701
Bad debt reversal		(351	)		(691	)
Inventory write down		1,640			630
Gain on disposal and liquidation of subsidiaries		0			(14,962	)
Other		(714	)		137
Changes in assets and liabilities		(47,883	)		(6,476	)
Total operating activities		(36,752	)		1,736
Investing activities		(40,674	)		(25,237	)
Financing activities		75,012			(26,544	)
Effect of foreign currency translation on cash and cash equivalents		876			165
Net change in cash and cash equivalents	$	(1,538	)	$	(49,878	)

Cash flow provided by operating activities was a result of the net income of $8.0 million, as adjusted for non-cash expense and income items of $3.1 million, and an increase in working capital of $47.8 million. In the three months ended June 30, 2015, we spent $89.8 million to purchase raw materials and other production materials, $15.0 million in staff compensation and social welfare, $6.9 million in taxes, $23.0 million in operating expenses, $4.6 million in interest, $1.0 million in land lease, received $102.7 million from our customers and $0.7 million from interest payments.

Cash flow used in investing activities in the three months ended June 30, 2015 represents $29.9 million payment for the purchase of property, plant and equipment, $6.6 million outflow for restricted cash deposited with banks as security against the issuance of letters of credit for the import of raw materials and as pledges for certain short-term and long-term borrowings, $9.8 million long term loan to a supplier and $5.6 million proceeds from disposal of Zhangjiakou.

Cash flow used in financing activities in the three months ended June 30, 2015 mainly represents net cash inflow of $20.9 million from short-term loans and net cash outflow of $54.4 million from long-term loans, and $0.3 million payment for assets under capital leases.

Outstanding Indebtedness

For information on our short-term and long-term borrowings, see “Item 1.  Financial Statements – Note 7.”

Capital Expenditures

Our capital expenditures were $37.5 million and the corresponding cash outflow was $29.9 million for the three months ended June 30, 2015, which mainly represented expenditures for our drying facility project in France.

Off-Balance Sheet Arrangements

We do not have off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Recent Accounting Pronouncements

In May 2014, the FASB issued a new pronouncement which affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

· Step 1: Identify the contract(s) with a customer.

· Step 2: Identify the performance obligations in the contract.

· Step 3: Determine the transaction price.

· Step 4: Allocate the transaction price to the performance obligations in the contract.

· Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The FASB has tentatively decided to (1) defer for one year the effective date for both public and nonpublic entities and (2) permit entities to early adopt the standard as of the original effective date.

An entity should apply the amendments in this ASU using one of the following two methods:

1. Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients:

· For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period.

· For completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

· For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue.

2. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects this transition method it also should provide the additional disclosures in reporting periods that include the date of initial application of:

· The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared to the guidance that was in effect before the change.

· An explanation of the reasons for significant changes.

The Company is in the process of evaluating the impact on its consolidated financial statements upon adoption.

In February 2015, the FASB issued a new pronouncement Inventory (Topic 330): Simplifying the Measurement of Inventory. The current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin.

The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost.

An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.

The Company is in the process of evaluating the impact on its consolidated financial statements upon adoption.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There is no material change in the information reported under Item 7A, “Foreign Exchange Risk”, “Inflation”, “Interest Rate Risk”, “Concentration of Credit Risk” and “Commodities Risk” contained in our Form 10-K for the fiscal year ended March 31, 2015.

ITEM 4.  CONTROLS AND PROCEDURES

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this report.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2015, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to the our management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the three months ended June 30, 2015, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

As of June 30, 2015, the end of the period covered by this report, the Company was subject to various legal proceedings and claims that have not been fully resolved and that have arisen in the ordinary course of business. In the opinion of management, the Company does not believe current legal proceedings and claims would individually or in the aggregate have a material adverse effect on its financial condition or operating results. However, the results of legal proceedings cannot be predicted with certainty. The Company intends to contest each lawsuit vigorously but should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially and adversely affected.

ITEM 1A. RISK FACTORS

For information regarding the risks and uncertainties affecting our business, please refer to “Part I, Item 1A Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015. There have been no material changes to these risks and uncertainties during the three months ended June 30, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6.  EXHIBITS

Exhibit Number	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets—June 30, 2015 and March 31, 2015, (ii) the Consolidated Statements of Operations—Three Months Ended June 30, 2015 and 2014, (iii) the Consolidated Statements of Comprehensive Income(Loss)—Three Months Ended June 30, 2015 and 2014, (iv) the Consolidated Statements of Equity—Three Months Ended June 30, 2015 and 2014, (v) the Consolidated Statements of Cash Flows—Three Months Ended June 30, 2015 and 2014, and (vi) Notes to Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SYNUTRA INTERNATIONAL, INC.
Date:	August 10, 2015	By:	/s/ Liang Zhang
			Name:	Liang Zhang
			Title:	Chief Executive Officer and Chairman

By:	/s/ Ning Cai
	Name:	Ning Cai
	Title:	Chief Financial Officer

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